Families with young kids know that there are lots of financial obligations. The day to day expenses add up quickly, and sometimes we lose sight of the big picture of what we should be doing with our money today to prepare for tomorrow. That might mean saving for college or retirement, or a future family vacation. Graig Galef, a Certified Financial Planner ® and Insurance Advisor at Strategies for Wealth and Park Avenue Securities, has some suggestions for us parents as we take stock of our financial reality. He’s a father of young kids himself, so he knows firsthand what it’s like!—Diana
What if anything should families of preschoolers do in January to prepare for their year financially?
The beginning of the year is a great time to think about and plan out your expenses for the year. Part of this process should be making a commitment to how much money you are going to save. While it is more exciting to talk about savings and investing, don't overlook a review of your life, disability, car, home and liability insurance coverages. The chances of you retiring or your kids going to college in 2010 is probably zero but an unplanned accident, disability or premature death is possible so make sure that your family is adequately protected.
When planning a budget, should families plan according to their paycheck schedule or biweekly, or think in terms of annual salary and yearly expenses?
I would suggest trying to plan out the numbers on a monthly basis so it corresponds to your largest expenses such as a mortgage and car payments. This is a little harder to do for people that receive a large bonus or commission as part of their salary at different points during the year. It is also worth noting that for young families several expenses, such as school tuition and vacations, are often paid for earlier in the year making it hard to save early but easier to save later in the year.
Is there a breakdown of percentages that a family could think about when budgeting for their family? (10% food, 25% housing etc.)
It is hard to come up with meaningful percentages since everyone's life is different - people have larger or smaller houses/cars, school tuition vs. no tuition, etc. At the end of the day I suggest that you have a goal of trying to save 10-20% of your income and make all of the other expenses fit in the remaining amount. This might be a stretch for some people but set a goal of saving 5% more than you saved last year and see how you do until you get into the 10-20% range.
If money is tight today, should we be saving for college?
Save for retirement first. You can potentially borrow for college or have the kids contribute; however, it is tough to borrow for retirement. Also, don't save for college if at the same time you are adding to your credit card debt. That is not really moving you forward.
If it comes to paying down credit cards or saving for college or saving for retirement, where should parents put their money?
If the credit cards are at high interest rate then it likely makes sense to pay those off. After that, retirement comes next and then college - although you could argue that the order of the last two could be reversed for certain families.
Overall, it is important to understand that everyone's financial situation is different. You want to make sure that you protect your plan, focus on savings and manage your risk. If you do those three things, good things should happen.
How are you planning for your 2010 and beyond? Any strategies in place that work for you?